Why has EGShares India consumer (INCO) risen 50% in the last year?

by Manshu on December 12, 2012

in ETF

When I did the best performing US based India ETFs a couple of weeks ago, one name was leading the rest of them by wide margin.

EGShares India consumer (INCO) has risen by about 50% this year, and this is a lot more than any other India based ETF that exists in the US this year.

I was curious to see why this was the case and reader RK Patil sent an email to me with why this was the cause. Here’s what he said (slightly edited).

INCO’s good performance is due to concentrated holding in United Breweries & United Spirits due to take over chances.

Even Indian FMCG sector  funds (SBI Magnum FMCG) &ICICI FMCG  has shown good performance (more than 40%) due to ITC .

I looked at the breakup of the holdings of this fund and saw that what he was saying was exactly right. INCO owns 30 shares, and as of last Sunday here are its top ten holdings against which I have added a column of year to date returns as well.

No.

Holding

% of total assets

YTD Return*

1 United Spirits Limited   7.88% 167.7%
2 Hindustan Unilever Ltd  5.82%  42.07%
3 United Breweries Ltd 5.62% 101.42%
4 Godrej Consumer Products Ltd 5.62% 85.4%
5 ITC Limited 5.38%  55.8%
6 Mahindra & Mahindra Ltd 4.89%  35.8%
7 GlaxoSmithKline Consumer Healthcare Ltd 4.72%  47.94%
8 Zee Entertainment Enterprises Ltd  4.68%  70.46%
9 Titan Industries Ltd  4.66% 67.28%
10 Tata Global Beverages Ltd  4.57%  92.46%

*Returns as on Dec 09 2012

As you can see from the numbers above a few of their stocks have done so well that it has given a tremendous boost to the fund performance. This of course can’t be a basis for long term selection into this ETF because who knows whether they will be able to own other stocks that do so well in the future or not.

This fund is focused on consumer sector in India and if this was the sector you wanted to get exposure to you should buy the fund, and not this year’s performance alone.  Some of these stocks have done great this year, but in a down market such stocks can go down a lot as well.

This table brings to mind another interesting question which is what do you do when you see one or two companies in your portfolio do too well and they account for a large majority of your portfolio? I’m sure a lot of people have seen this situation int the past year, and in a future post I’ll share some thoughts on what I do when I encounter such a situation.

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